Saturday, November 5, 2016

International Conference of Prices and Markets

I just spent a tremendous day at the 2016 International Conference of Prices and Markets! I was blessed to present a paper on modern growth theory in light of Ludwig von Mises. I was also blessed to hear papers by David Howden, Glenn Fox, George Bragues, and Pierre Desrochers. A good time was had by all.

Thursday, September 29, 2016

Ludwig von Mises and My Life As an Economist

Ludwig von Mises once said that it was his reading Carl Menger's Principles of Economics that made him an economist. Well the same thing happened to me when I read Mises' Human Action. I documented the importance that book had on my life as a student in an address I gave at a conference celebrating the publication of the Scholars Edition of Human Action by the Ludwig von Mises Institute. Today is the 135th anniversary of Mises' birth, so I take this opportunity to remember him and the importance of his work in my life. What I said those many years ago are still true today:
It is impossible to calculate the full benefits I have taken from Mises's Human Action. It showed me the truth of economics. It made me want to become an economist. It inspired me to be a scholar, and it set forth the rational case for liberty. It does the same for my students.

God providentially used Mises' work to confirm me in my calling as an economist and college professor. For that I continue to be grateful.

Sunday, September 18, 2016

Survivied by His Wife

In a classic comedy routine I remember watching on the original Late Night with David Letterman . Alan King uses Ludwig von Mises' obituary as part of the act. I remember how stunned I was to hear Mises' name (and somewhat impressed that I knew who he was, being a young economics major). You can view it by clicking here.

Thursday, August 4, 2016

Bohm-Bawerk at Harvard

In past graduate course exams that is. Following are two questions from the final exam for Harvard's graduate level Economic Theory course from 1912 posted at the fascinating blog Economics in the Rear-View Mirror currated by Irwin Collier.

  1. What three grounds explain, according to Böhm-Bawerk, the preference for present goods over future? Which of them does he conclude to be the most important? State Fisher’s criticism; and give your own opinion on the controverted question.

  1. “In the present condition of industry, most sales are made by men who are producers and merchants by profession. . . .For them, the subjective use value of their own wares is, for the most part, very nearly nil. … In sales by them the limiting effect which, according to our theoretical formula, would be exerted by the valuation of the last seller, practically does not come into play.” — Böhm-Bawerk.
    What is the ” theoretical formula “? and what is the importance of the qualification here stated?
They are important reminders that in his day Bohm-Bawerk was recognized as in important and distinct economic theorist. In fact, there is much at Economics in the Rear-View Mirror that reveals Austrian economics had a significant place at the economics table before World-War II.

Friday, July 29, 2016

The Division of Labor and Social Order

Mises University is in full swing at The Ludwig von Mises Institute this week. A couple of days ago my department chair, Jeffrey Herbener gave the following lecture on the importance of the division of labor for society.

This is the quality of economic education students at Grove City College receive every day.

Monday, July 18, 2016

Rothbard University!

This week I will be joining an illustrious faculty lecturing at Rothbard University offered by Mises Institute Canada. The event will be held on the campus of the University of Toronto. On the schedule are lectures by professors such as David Howden, Glenn Fox, and Pierre Derochers. I will be lecturing on the topics of entrepreneurship, money, economic development, income redistribution, and labor unions. These are topics that I teach about at Grove City College and that I have written about in my book, Foundations of Economics. I trust a good time shall be had by all.

Tuesday, July 12, 2016

The Fed and Moral Hazard

I have written on the topic of moral hazard before. It occurs when we adopt a policy to protect us from the consequences of certain behaviors, but the policy encourages the very behavior causing the problems.

It has been noted by others that the central bank, by having a monopoly on issuing money and by serving as the lender of last resort, ostensibly to promote and maintain financial stability, actually promotes less measured and more risky behavior on the part of banks, which causes the very financial instability the Fed was created to remove.

A new paper by Mark A. Carlson and David Wheelock, in a new working paper at the St. Louis Federal Reserve Bank, affirm this conclusion. The abstract is as follows:
As a result of legal restrictions on branch banking, an extensive interbank system developed in the United States during the 19th century to facilitate interregional payments and flows of liquidity and credit. Vast sums moved through the interbank system to meet seasonal and other demands, but the system also transmitted shocks during banking panics. The Federal Reserve was established in 1914 to reduce reliance on the interbank market and correct other defects that caused banking system instability. Drawing on recent theoretical work on interbank networks, we examine how the Fed’s establishment affected the system’s resilience to solvency and liquidity shocks and whether these shocks might have been contagious. We find that the interbank system became more resilient to solvency shocks but less resilient to liquidity shocks as banks sharply reduced their liquidity after the Fed’s founding. The industry’s response illustrates how the introduction of a lender of last resort can alter private behavior in a way that increases the likelihood that the lender will be needed.
That Carlson and Wheelock find that the Fed made the interback system more resilient to solvency shocks should not surprise. A central bank providing reserves to banks in trouble will reduce insolvency problems, almost by nature. What I find most interesting is the evidence that the Fed serving as a last resort did in fact seem to encourage behavior that increased liquidity problems, thereby creating a demand for the Fed's services. In this instance of government granted monopoly privilege, it is almost as if we have a case of the straw man view of Say's Law: the supply of emergency loans create their own demand. You can read the entire paper by Carlson and Wheelock by clicking here.

Recurrences of such financial crises' was the main ostensible reason the Fed was created. I write about the sharp contrast between Federal Reserve rhetoric and the real consequences of the Fed in the book The Fed at One Hundred